The Steel Index

The Steel Index

May 18, 2009 09:47 ET

TSI Iron Ore Price Selected by LCH.Clearnet for Cleared Swaps

LONDON, UNITED KINGDOM--(Marketwire - May 18, 2009) - LCH.Clearnet has confirmed it will launch its cleared OTC iron ore swap contract using exclusively The Steel Index (TSI) iron ore reference price for settlement.

"We are delighted to provide LCH.Clearnet with the index for its settlement of cleared iron ore swaps. Its selection of TSI's iron ore reference price confirms our index as the industry standard." says Steven Randall, Managing Director of TSI. "The growth potential in iron ore swap trading is enormous. In 2008 physical shipments of iron ore exceeded 800 million tonnes, with more than 40% sold into China on a spot price basis."

This move by LCH.Clearnet follows the successful launch of a cleared iron ore swap contract on 27th April 2009 by the Singapore Exchange, which also chose exclusively The Steel Index iron ore reference price for settlement.

TSI's iron ore reference price has won widespread industry support due to its rigorous and verifiable methodology. Index prices are based entirely on actual spot transaction data submitted by industry participants.

Rising iron ore price volatility and uncertainty about future price movements mean miners, traders and steel mills are increasingly looking for tools to manage the price risks involved in selling and buying iron ore. LCH.Clearnet's clearing of OTC iron ore swap contracts based on TSI's prices will enable traders to mitigate bilateral counter-party credit risk.

Isabella Kurek-Smith, Director Energy and Freight at LCH.Clearnet said "As one of the leading providers of price information for key steel products globally, TSI was a natural choice for LCH.Clearnet. With our specialist OTC clearing services and TSI's reliable reference prices, the iron ore swap market now has the opportunity to evolve into a key derivatives market."

The cleared contract uses TSI's 62% Fe iron ore reference price for fines delivered to China for settlement. It is cash-settled on the average of the iron ore reference prices published in the expiring month.

Note to Editors:

About The Steel Index (TSI)

The Steel Index (TSI) is the premier source of independent, reliable, weekly steel and iron ore price information based on actual transactions. It is the most rigorous price discovery service available for weekly global steel and iron ore prices. It is an impartial organisation that collates steel and iron ore price data for clearly specified products. Price data is submitted by steel and iron ore companies using secure web-based technology. Weekly reference prices are then calculated using transparent and verifiable procedures.

Further information on The Steel Index, including details of product specifications and procedures, are available at http://www.thesteelindex.com/.

About LCH.Clearnet

LCH.Clearnet is the leading independent clearing house in Europe, serving major international exchanges and platforms, as well as a range of OTC markets. It clears a broad range of asset classes including: securities, exchange traded derivatives, energy, freight, interbank interest rate swaps and euro and sterling denominated bonds and repos; and works closely with market participants and exchanges to identify and develop clearing services for new asset classes.

As a clearing house, LCH.Clearnet sits in the middle of a trade, assuming the counterparty risk involved when two parties (or members) trade. When the trade is registered with LCH.Clearnet, it becomes the legal counterparty to the trade, ensuring the financial performance; if one of the parties fails, LCH.Clearnet steps in. By assuming the counterparty risk, LCH.Clearnet underpins many important financial markets, facilitating trading and increasing confidence within the market. Initial and variation margin (or collateral) is collected from LCH.Clearnet members; should they fail, this margin is used to fulfill their obligations.

The amount of margin is decided by LCH.Clearnet's highly experienced risk management teams, who assess a member's positions and market risk on a daily basis. Both the soundness of the risk management approach and the resilience of its systems have been proven in recent times. LCH.Clearnet is regulated or overseen by the national securities regulator and/or central bank in each jurisdiction from which it operates.

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